Is the leverage of European banks procyclical? (original) (raw)

2012, Empirical Economics

Abstract

Detecting whether banks' leverage is indeed procyclical is relevant to support the view that booms and crises may be reinforced by some sort of supply side financial accelerator, whilst finding a plausible explanation of banks' behaviour is crucial to trace the road for a sensible reform of financial regulation and managers' incentives. By analyzing a large sample of European banks, we show that procyclical leverage appears to be well entrenched in the behaviour of those banks for which investment banking prevails over the traditional commercial banking activity.

Loading...

Loading Preview

Sorry, preview is currently unavailable. You can download the paper by clicking the button above.

References (19)

  1. Adrian T., Shin H.S. (2010a), "Financial Intermediaries and Monetary Economics", to be published in Hanbook of Monetary Economics, 3A (2011) (B. Friedman and M. Woodford eds.).
  2. Adrian T., Shin H.S. (2010b), "Liquidity and leverage", Journal of Financial Intermediation, 19, 418-437.
  3. Andrews D., Monahan C. (1992), "An improved heteroskedasticity and autocor- relation consistent covariance matrix estimator", Econometrica, 60, 953-966.
  4. Angelini P., Panetta F. et al (2009), "Financial sector procyclicality. Lessons from the crisis". Bank of Italy occasional Paper, n. 44. Basel Committee (2010a), "Group of Governors and Heads of supervision an- nounces higher global minimum capital standards", September, 2010. Basel Committee (2010b), "Basel III: A global regulatory framework for more resilient banks and banking systems", December 2010. Beccalli E., Frantz, P. (2012), "The determinants of mergers and acquisitions in banking", forthcoming Journal of Financial Services Research. Bernanke B., Blinder A. (1988), "Credit, money and aggregate demand", Amer- ican Economic Review, 78, 435-439.
  5. Bernanke B., Gertler M. (1989), "Agency costs, net worth, and business fluctu- ations", American Economic Review, 79, 14-31.
  6. Brambor T., Clark W. and Golder M. (2006), "Understanding interaction mod- els: Improving empirical analyses", Political Analisys, 14, 63-82.
  7. Damar H., Meh C., and Terajima Y. (2010), "Leverage, balance sheet size and wholesale funding", Bank of Canada WP 2010-39.
  8. D'Hulster K. (2009) "The Leverage Ratio", crisisresponse, Note n. 11, The World Bank.
  9. Focarelli, D., Panetta, F., Salleo, C. (2002), "Why Do Banks Merge?", Journal of Money, Credit, and Banking, 34, 1047-1066.
  10. Geanakoplos J. (2009) "The Leverage Cycle", NBER Macroeconomic Annual, 24, 1-65.
  11. Gertler M., Karadi P. (2009), "A Model of Unconventional Monetary Policy", mimeo, New York University Gertler M., Kiyotaki N. (2010), "Financial Intermediation and Credit Policy in Business Cycle Analysis", to be published in Hanbook of Monetary Economics, 3A (2011) (B. Friedman and M. Woodford eds.).
  12. Gropp R., Heider F. (2010), "The determinants of bank capital structure", Re- view of Finance, 14, 587-622.
  13. Johnston J, DiNardo J. (1997), "Econometric Methods", McGrawHill, Fourth Edition. Kalemli-Ozcan S., Sorensen B., Yesiltas S. (2011), "Leverage across firms, banks and countries", NBER Working Paper 17354.
  14. Kiyotaki N., Moore J. (1997), "Credit cycles", Journal of Political Economy, 105, 211-248.
  15. Meh C., Moran K. "The Role of Bank Capital in the Propagation of Shocks", Bank of Canada Working Paper 2008-36.
  16. Memmel C. and Raupach P. (2010), "How do bank adjust their capital ratios?", Journal of Financial Intermediation, 19, 509-528.
  17. Pasiouras, F., Tanna, S., Gaganis, C. (2011), "What Drives Acquisitions in the EU Banking Industry? The Role of Bank Regulation and Supervision Framework, Bank Specific and Market Specific Factors", Financial markets, Institutions and Instruments, 20, 29-77.
  18. Piffer M. (2010), "Banks' leverage dynamics: an empirical study", mimeo.
  19. Shin H.S. (2009) "Comment on 'The Leverage Cycle'", by John Geanakoplos, NBER Macroeconomic Annual, 24, 75-84.